Measured Room to Run on NASDAQ ~ The Risk Averse Alert

Wednesday, December 04, 2013

Measured Room to Run on NASDAQ

Recall NASDAQ's cumulative advance-decline line, starting last November (2012), reversed  its long-established "death spiral." Ever since, an Elliott 3rd wave's typical "dynamism" has been revealed by this measure's ascent running counter to its decade-and-running plunge into the abyss...

Thus, a suitable Elliott wave count applied to NASDAQ's Composite index should acknowledge this technical distinction. Dynamism typical of Elliott 3rd waves finds NASDAQ's cumulative advance-decline line displaying the very thing.

Granted, we might also conclude that, after a decade-and-running plunge into the abyss this measure's sudden reversal higher indicates "something's not right," which view from a technical perspective we'll have more to say shortly.

Acknowledging this heightened probability an Elliott 3rd wave has been unfolding on NASDAQ's Composite, we have the following view, with the red Elliott wave count considered a fair alternate to the black, which is preferred because it has a 3rd wave beginning at November 2012 bottom...

So, wave (c) completing a simple, a-b-c corrective wave up from March 2009 bottom is easily seen unfolding on NASDAQ since November 2012. We might even imagine this advance has considerable room yet to travel, in which case the Elliott 5-wave channel shown above would likely be invalidated, thereby killing the alternate wave count shown above in red (this labeling 5 waves up from October 2011, which low in this alternate view ended wave (b) and began wave (c)).

One question we might ask right now is whether NASDAQ could be in a spot similar to the October 1998 - March 2000 period, wherein NASDAQ-listed issues led the market's charge higher? Recall brick-and-mortar businesses relatively languished while the "new economy"—technology—flourished. Just yesterday we made the case suggesting the "old economy" was likely to see its further advance likely be measured, this largely on account of notably stunted demand since early October bottom (the volume story).

Moving our view out we see the Elliott 3rd wave unfolding on NASDAQ is wave (c) of b, the latter developing off March 2009 bottom. NASDAQ's advance from that bottom is forming the middle wave of the "second three" in a complex corrective wave unfolding since 1998, when wave III up from NASDAQ's 1974 bottom completed .

We have here, too, some technical indication of remaining potential to carry NASDAQ still higher in its advance off March '09 bottom. By way of relative strength (RSI), there does not appear a lot of upside promise for NASDAQ at the moment. Yet by way of momentum (MACD) in store over coming months might be upside surprises, although whether these could, would or should produce more profoundly distorted upside momentum than that of late-1999, early-2000 is uncertain. In hindsight, though, we could conclude "something's not right" was conveyed by it.

This, then, leads to an interesting question: has not NASDAQ's upside momentum since its October 2002 bottom been fairly elevated, relatively speaking, in general, contrasted to its performance during the latter 1990s? Thus, a more profound measure of "something's not right" could be reasonably seen demonstrated over the interim since October 2002 bottom.

Indeed, we might conclude elevated momentum rather reliably presents an expression of NASDAQ exhaustion. And so here we are. Yet very much on display via this measure, too, is a tendency for NASDAQ to remain levitated even while its momentum recedes. So long as momentum's positive disposition is sustained, NASDAQ remains buoyant. All the more positive right now for NASDAQ is its best relative strength since Y2k. Some manner of negative RSI divergence should develop before its lights out on NASDARK.

So, here too we find the market evidently has legs to run higher still, while more immediately speaking, any further advance probably will unfold in a more or less measured manner, all told going into the new year.

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